Franchise suppliers in Mexico: what to agree before buying

Buying a franchise also means accepting a particular way of sourcing supplies for the business. Ingredients, packaging, uniforms and spare parts may be subject to approved suppliers and terms beyond your control. Across a franchise network, consistency helps maintain quality. Before investing, however, you need to check that these rules allow you to keep trading reliably and achieve a reasonable margin.

1. Identify which purchases will be mandatory

Before comparing brands, request a written list of the products and services you must buy exclusively from the franchisor or designated suppliers. Distinguish between three categories: exclusive purchasing, purchasing from approved suppliers, and unrestricted purchasing subject to specifications.

It is not enough to ask who supplies the main product. Your commitments may also cover packaging, cleaning products, equipment maintenance or point-of-sale systems. A seemingly minor item can bring operations to a halt if there is no approved alternative.

Prepare a table covering:

• The product or service and its required specification.
• The approved supplier and possible alternatives.
• Minimum purchase quantities, ordering frequency and delivery lead times.
• Price, taxes, freight and payment terms.
• The document that sets out the obligation.

Also ask whether the franchisor earns revenue from selling supplies or receives incentives from suppliers. Seeking this clarification is part of commercial due diligence, not a claim that there is a general obligation to disclose every internal arrangement. What matters is understanding how the supply arrangements work and which costs you will bear.

2. Calculate the true cost, not just the catalogue price

Request quotations for the city where you plan to open. A national price list may exclude refrigerated transport, insurance, handling charges or surcharges for small orders. Also confirm whether prices include Mexican value added tax (IVA), and ask your accountant to distinguish the underlying business cost from the tax and cash-flow implications.

For each significant item, calculate the cost delivered to your premises: the purchase price plus transport and any other charges needed to receive it. Then factor in foreseeable losses from expiry, breakage or lower-than-expected yield, using verifiable information rather than assumed percentages presented as facts.

In particular, check:

• Whether the minimum order quantity will fit in your storage space.
• Whether you can sell the stock before it expires.
• Whether a discount requires you to buy more than you need.
• Whether you must pay before receiving or inspecting the goods.
• Whether the payment terms offered depend on subsequent credit approval.

Use this information to carry out a sensitivity analysis: vary the prices of your main supplies and see how the margin on the products you sell changes. Do not confuse gross margin with net profit; royalties, payroll, rent and other expenses still need to be deducted.

Speak to franchisees in comparable locations. Ask whether quoted prices match invoiced prices and what delivery problems they have experienced, while respecting their confidentiality commitments.

3. Put the essential terms in the contract

Mexico has specific franchise legislation. Article 245 of the Federal Law for the Protection of Industrial Property (LFPPI) defines a franchise. Article 246 requires a written contract covering, among other things, inventory and goods supply policies, as well as policies, procedures and timeframes for reimbursements, financing and other payments or consideration due from the parties.

This does not mean the law guarantees fixed prices, supplier credit or freedom to buy from third parties. Those terms must be reviewed and, where appropriate, expressly negotiated.

Ask for the contract or its appendices to identify the essential supply rules. If they refer to a manual or catalogue, request the current version and check how it can be amended. Review with a lawyer how those operational updates relate to the agreed financial terms.

It is worth defining the procedure for updating prices, advance notice requirements, the treatment of orders already accepted and the option to propose equivalent suppliers. Avoid relying on verbal promises such as ‘stock will always be available’ or ‘price increases will be small’.

Separately, Article 245 requires information about the state of the business to be provided at least thirty days before the contract is signed. Use that period to cross-check the supply terms against the documentation you receive.

4. Agree what happens if supplies fail

Exclusive purchasing arrangements need a contingency procedure. Ask what will happen if the supplier fails to deliver, delivers an incomplete order or sends faulty goods. An obligation to maintain standards does not, by itself, explain how you can continue serving customers.

Negotiate a process that specifies how to report problems, what evidence to provide, who authorises substitutions and how quickly they must respond. Include criteria for replacements, returns, credit notes and transport costs. If emergency purchases are permitted, the conditions and how long permission applies must be clear.

Practical conclusion: before buying, put together your supplier table, local quotations and a written contingency procedure. If you cannot establish how much your supplies will cost or what you will do if a supplier fails to meet its obligations, an essential part of your assessment is still missing.